Carbon Emission Charges
(3 years, 1 month ago)
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Mr Laurence Robertson (in the Chair)
Before we begin, I encourage Members to wear masks when they are not speaking, in line with the current guidance from the Government and the House of Commons Commission. I remind Members that the House asks that they have a covid lateral flow test twice a week if coming to the parliamentary estate, either at the testing centre in the House or at home. I also remind Members to give one another and staff plenty of space when seated and when entering and leaving the room.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I beg to move,
That this House has considered e-petition 574678, relating to charges on carbon emissions.
It is an honour to serve under your chairmanship, Mr Robertson.
The world’s eyes are on the UK for the COP26 climate change conference. Indeed, many Members wanted to contribute to this debate but are at the COP26 climate change conference, making these arguments directly, I am sure. Tackling climate change can sometimes feel like such an enormous and challenging task that we just do not know where to start. It can also feel a little too abstract to cut through people’s day-to-day concerns about their jobs and the cost of living.
I want to start with a reminder that while meeting our climate goals is certainly challenging, it is very achievable. Thanks to the Climate Change Committee, we can put concrete figures on the cost of the transition. The committee estimates that we must raise investment in low-carbon technology by around £50 billion per year over the next 10 years. Most of that will come from the private sector, and will go towards meeting the Government’s 2050 target. It sounds like a lot, and the Government will need to take the lead on it, but it works out at less than 1% of GDP over the next 30 years —around an eighth of the current annual investment.
As the Government’s net zero review consistently points out, the upfront cost of meeting the net zero target is dwarfed by the cost of not acting. Government and Parliament have committed to that transition. It has been legislated for and it must happen. We know the cost of achieving net zero is manageable with the right support. We also know, however, that the impact of the transition will not be felt equally across the economy or society. Because of the confusing array of climate policies currently in place in this country, it can be difficult to determine where the impact will be felt and to what extent. There is a great deal of uncertainty around not just the development and impact of low-carbon technologies, but how to design policies and the unequal effect that they will have on sectors and households.
Carbon emissions and the climate change they cause are a classic example of market failure. Individuals and businesses do not face the full cost of the emissions that they create; all else being equal, we would expect them to emit more than is optimal for society. For some time, economists have argued that the answer is to put a price on emitting greenhouse gases, so that individual firms face the full cost of their choices.
In its simplest terms, the petition calls for the Government to work towards a single carbon price across almost all sectors. The campaign argues that a single carbon price would amalgamate the many existing price instruments, including the carbon price support and the UK emissions trading scheme—a different form of carbon charging—into a simple, transparent carbon charge. Zero Carbon points out that our current policies cover emissions across only about a third of the economy, giving the biggest polluters free allowances while the consumers are left to pay. I pay tribute to the petition’s creator, Isabella Goldstein, who is the senior campaign manager at the Zero Carbon campaign.
The theory behind this form of carbon charging is straightforward. If we had, for example, a single carbon price of £75 per tonne of CO2, it would incentivise people and businesses to pursue any methods of emission reduction that cost less than £75. Hon. Members will be aware that we are far from having a single carbon price across sectors. Instead, we have a patchwork of policies that incentivise or disincentivise emissions in ways that are often unclear. While overall they have the effect of, for example, discouraging the burning of fossil fuels, the cost varies hugely depending on the source of the emissions. It is argued that the key benefit of working towards a uniform carbon price is that it avoids a situation where some sectors face higher carbon prices, and must therefore make more expensive carbon reductions, while others could more easily and cheaply reduce their emissions but do not.
To be successful, a carbon charge must be accompanied by extensive investment in low-carbon technologies. The state—the Government—would have to lead on that. It would, by and large, leave businesses and households to decide how best to reduce their emissions in the most efficient way possible. It would not affect everyone equally.
However, I know that the petitioners do not advocate a purely market-based approach. When I spoke to Hannah Dillon, the head of campaigns at Zero Carbon, one of her biggest concerns was that we design policies to tackle climate change in a fair and equitable way. However, it is not just about the principled argument for fairness; ensuring that the most adversely affected are supported is crucial in maintaining public and political support for net zero. An obvious answer is that charges aimed at tackling climate change would also raise revenue, and the revenues could be used to compensate the groups that are most adversely affected.
However we address this issue, it is essential that the Government set a clear path for policy, and introduce support through our social welfare system to give households and businesses time to adjust. This is a complex and difficult policy area, and it will have a huge impact on our living standards for decades to come. Therefore, decisions must be taken with care and be subject to proper scrutiny. We must all accept the urgency of the climate crisis, and the need to take action as soon as possible.
Another key challenge relates to the emissions embedded in imports. In line with international practice, emissions in imported products are simply ignored for the purposes of our climate targets. Research from the World Wildlife Fund suggests that almost half of the UK’s emissions come from this source. In theory, we could reach net zero on paper even if our consumption of imported goods led to a higher level of global emissions. The lead petitioners have called on the Government to address this issue with carbon border adjustments, which ensure that there is a price to pay for carbon-intensive imports and shield UK competitors who do not face equivalent charges. I know that this is something that the EU is working on. It will take some years to implement, but without some form of carbon adjustment at the border, there is a danger that UK climate policy could simply drive industry to locations with fewer restrictions, increase carbon-intensive imports to the UK and, ultimately, increase global emissions.
Before I conclude, I want to ask the Minister a specific question on the UK emissions trading scheme. The Government previously said that they would consult on the implementation of a net-zero-consistent cap for the UK emissions trading scheme. We know that it is supposed to happen this year, and it was referenced in the Government’s net zero strategy, but details on the timescales have been vague. When the Minister responds, will she tell us when that review is going to happen?
To conclude, all eyes are on the UK for the COP26 conference. The planet cannot wait, and this petition has underlined the need for action in three key areas. First, we need to facilitate the shift to low-carbon alternatives within households and ensure businesses take responsibility for the emissions they produce. Secondly, we must protect those who are most vulnerable to the unequal impact of climate policies. If we do not do so, not only will the outcome be regressive; it will undermine public support for the transition to net zero. Finally, we must take measures to stop carbon leakage. It would be catastrophic if we were to achieve net zero domestically at the expense of triggering a carbon-intensive import boom. This is our time to show that this country will lead, not lag, in the global fight against climate change, and I for one—joined, today, by over 100,000 petitioners—hope that we take it.
Jerome Mayhew (Broadland) (Con)
It is a pleasure to serve under your chairmanship, Mr Robertson, and to follow the speech made by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), the contents of which I very substantially agree with. One of the wonderful things about this debate is that it stretches across the divide that so often separates the views of people in this House.
However, I approach this matter from a slightly different perspective—albeit arriving at similar conclusions—because I see this as the role of the free market. As a former businessman and entrepreneur, I want to unleash the power of the free market to help solve some of the problems that its historical performance has helped create. Too often, the market has been seen as the villain. We talk about business profiteering at the expense of the environment, or businesses trashing the world’s resources, and that applies not just to carbon net zero but to biodiversity. As Professor Dasgupta noted in his report earlier this year, in terms of the biosphere our current practices are using the resources of 1.6 worlds.
It is true that historically, the market has been almost totally blind to the cost of carbon in its economic transactions. When I buy a product—such as this glass—I pay for the raw materials, the design process, the manufacturing, the marketing, the transport and the profit, but I do not pay for the cost of the carbon emission, because that is described as an externality: it dissipates into the atmosphere and there is no significant cost attached to it. The result of that misallocation of resources is that the transaction is incomplete. As a purchaser, I am not having a true economic exchange with the supplier, because I am paying for only part of the product, not all of it. As a result, there is no signal for consumers to look at two separate products and identify the differential cost between the manufacturing process of a high-carbon glass and that of a low-carbon glass. As consumers we are blind, so all those myriad consumer decisions that we take in our economy every day are ineffective in helping give a signal to manufacturers. The process does not provide a signal to consumers; and consumers, in turn, do not provide a clear market signal to entrepreneurs and businesses.
What are we left with? At governmental level, we all know that the climate change crisis is a huge problem, so we have plans from Government, who are picking technology winners by investing in hydrogen, for instance. I hope that hydrogen will be a key part of the solution in our progress towards net zero by 2050, but it might not be. The real problem is that we are currently relying on the Government to take those kinds of decisions because the market is substantially blind. We need to unleash its power through a price for carbon.
We know that markets are without question the most efficient decider that man has ever come up with for the use of resources. They do so not for moral but for wholly personal reasons: they wish to maximise profits, and the way to maximise profits is to minimise inputs. Properly directed by market signals, the market is the most efficient resource user we can come up with. It informs millions of decisions. Crucially, the market and its myriad transactions create the individual wealth that can go on to fund the additional Government action that the market alone is unable to provide. Although I am a free marketeer, I am not a free marketeer red in tooth and claw. There is absolutely a role for Government to set the structures and give the long-term signals for the free market, and to provide assistance and support for those left-behind parts of our community that otherwise would be disadvantaged by that process.
Our biggest challenge in creating a price for carbon is that the United Kingdom economy is not self-contained; we are part of a global economy. If we increase the price of carbon in this country, which is really another name for increasing the price of energy, that will have a very direct and immediate risk to our domestic economy, particularly our manufacturing base. Increasing the price of energy in our domestic economy would result in an increase in the costs of our manufacturing base, which would then either go offshore and relocate to a lower-cost environment abroad, or it would stay and get undermined by the sucking in of lower-cost, higher-carbon imports. That would result in the worst of all worlds: the destruction of our own economic base and an actual increase in greenhouse gas emissions as transport costs are added to the costs of production.
As an economy, we have been very timid in our approach to applying a cost of carbon. We do apply it in some sectors—about a third of our manufacturing base is affected in some way by carbon pricing through the emissions trading scheme. But that is only a third: two thirds of our manufacturing base has no carbon pricing attached to it at all, and none of this country’s imports are assessed or priced for their carbon content.
How do we address this seemingly impossible conundrum? The answer is, in principle, quite simple: a carbon border adjustment mechanism. That means that, at the edge of the economy, when imports reach the border, we assess those products for their carbon content and take a similar approach to that taken in the domestic market by applying a tariff. That is not protectionist in principle, because it would apply the same price and create a level playing field, as opposed to disadvantaging exports in favour of domestic manufacturing. It must also be transparent and within the permissible exceptions of the World Trade Organisation, which allows for tariffs in environmental cases.
This approach allows, in principle, for the increasing of the price of carbon for the domestic market, safe in the knowledge that imports will have a similar price attached. A lot of work has been done by think-tanks and others—and, I hope, by the Treasury and the Department for Business, Energy and Industrial Strategy —on how we can start applying this approach in practice. Conceptually, it is a very simple process, but it has the potential to be fiendishly difficult to apply. If we can apply it, the benefits would be enormous. The market signals would incentivise the reduction in carbon manufacturing processes that this country seeks to achieve.
The benefits would also expand beyond our borders. If a manufacturer in a third country—let us say, for example, in China—exports its product to the United Kingdom, they will not want to receive a significant tariff addition to the price of the product. The Chinese Government—or any other third-party Government—have a choice. They can think to themselves, “Well, we can either have a tariff applied to our exports, which then gets paid to the UK Treasury, or we can apply a similar process ourselves and keep the money here in China.” The third option is that they reduce their 70% to 80% reliance on coal for their energy, and reduce the differential between their carbon production and our own. All these are very positive international signals that we can spread beyond our borders through the imposition of a CBAM.
There is evidence that this is already working. On 15 July the European Union published a draft Bill to implement a carbon border adjustment mechanism throughout the European Union. Even before that has come to fruition—it is just at draft stage—there is evidence that automobile manufacturers in South Africa are already seeking to decrease the carbon content of their manufacturing process, because they are concerned that they will be adversely affected by the imposition of a CBAM in the European Union. Even the publishing of a Bill—a draft Bill—is already having real-world positive impacts on the reduction of carbon.
Another advantage is the potential for reshoring manufacturing production to the United Kingdom. It removes one of the current disincentives for high-energy or relatively high-energy production in this country because we do have a price for carbon through the ETS. That is not sufficiently significant to change consumer behaviour on a more widespread basis, which we wanted to do, but it is enough to provide a minor disincentive to have manufacturing in this country. If we can remove that disincentive, it will encourage reshoring. Research undertaken, I think by Capital Economics, into the steel industry in the United Kingdom has concluded that steel manufacturing’s international competitiveness would actually be increased through the imposition of a carbon border adjustment mechanism by between £50 and £75 per tonne through the 2020s.
In my submission, we have a political opportunity now not just with the advent of COP26, but, more significantly perhaps, with the publication of a draft Bill by the European Union. This gives us an opportunity to address one of the key challenges to a CBAM, which is how we deal with the concern or disapproval of large exporting countries that have a high carbon input—for instance, China. We have an opportunity to join forces with the European Union and have a more internationalist approach to the introduction of a CBAM now. It would not hurt given that, dipping into another language, we have a certain froideur across the channel currently, and sticking to the same approach, what about a bit of rapprochement?
There is a joint objective here. With Brexit, we are allowed to be nimble of foot. We can come up with these policies ourselves, and we are not held back by a pan-European approach. Equally, it does not prevent us from agreeing and co-operating with the European Union when it is in our national interests. I think this is a great example of where our national interests and those of the European Union coincide very neatly, and it gives us an opportunity to build bridges should we wish to do so. It also helps us with the potential approach to China, in that it is the entire European market that is taking—or potentially taking—this approach, as well as with the United States of America, which has expressed an increasing interest in the concept of some form of carbon border adjustment mechanism.
I mentioned earlier that CBAMs are simple in principle and hard to apply in practice. I am agnostic as to how we do it, and many different approaches have been suggested. We could expand on the current ETS. We could, as Mr Carney has suggested, take the key products that are internationally traded—steel, cement, aluminium, chemicals and so forth—and start on that basis, but then build out into the wider economy as we gain confidence and competence in the process of a CBAM. We could apply it by sector assessment by country, which would be more of a purist approach, but much more complex to apply. I suspect that the answer is to start small and to grow as we learn; but the sooner we start, the better. I conclude my speech by challenging anyone to come up with a way in which we can impose a price for carbon without some form of carbon border adjustment mechanism.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Mr Robertson. I congratulate the petitioners on bringing forward the petition and the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) on presenting the debate and making some key points. It is a worthwhile time to debate this subject, given that COP26 is taking place in Glasgow as we speak, and how we achieve net zero in the fairest way is something that needs serious discussion. It is a slight disappointment that there were not more Back-Bench contributions, but so be it.
I completely agree with the three key points made by the hon. Lady. Obviously, we need to generate the shift to low-carbon technologies, but it is critical that we protect the most vulnerable and stop carbon leakage. The hon. Member for Broadland (Jerome Mayhew) also made that point. He made an interesting contribution, and I will try to summarise it. I think he said that although he is a proud free marketeer, he is not really a free marketeer because interventions need to be taken. That is quite an interesting dynamic. He also seems very much to be a protectionist when it comes to imported goods—but again for the right reasons, because we are talking about carbon border adjustments.
Jerome Mayhew
I want to make it absolutely clear that I am not a protectionist. If a CBAM is to be successful, it is important that we ban the P-word. The tariff has to be applied at exactly the same level as that used in the domestic economy.
Alan Brown
It is possible that I was being slightly flippant when I used the word “protectionist”. I take his point that if we are going to do this correctly, it will have to be in collaboration with other countries. I agree with that.
If we believe in the basic principle that the polluter pays, a carbon tax makes sense. If we are serious about achieving net zero, we need to give serious consideration to carbon taxes. However, as has already been said, any such taxation needs to be fair. It cannot be structured in such a way that companies feel obliged or rewarded for relocating to other countries, therefore defeating the purpose. Critically, it must also not lead to the poorer in society paying a bigger burden, especially if a tax is levied on gas bills. The reality is that the more affluent will be able to switch to heat pumps, but those struggling to pay their energy bills will have no chance of doing so. We cannot leave the most vulnerable to pick up the carbon tab for others as the energy sector transitions to net zero.
The recent Government policy of £5,000 grants for heat pumps is still insufficient for most people to be able to afford the installation of a heat pump. The unit cost of a heat pump is still in the price range of £6,000 to £10,000. A £5,000 grant goes only part of the way, but it does not make up for all the additional work that is also required. We need to have proper energy efficiency measures, which are welcome but cost money, such as a new water tank, possibly new radiators, decommissioning boilers, and then there is decoration works that need to be done to a property once all that work is completed. That £5,000 grant is clearly not the pathway to increasing the number of heat pump installations from current figures of 30,000 per year to the Government target of 600,000 a year. Going forward, we need to look at that in the mix. Before a carbon tax is introduced, we need to ensure that it does not create more people who are fuel poor, and also look at how we use the revenues from the carbon tax to help get heat pumps and energy efficiency measures for those who need them most.
At the moment, decarbonisation of the power sector is being paid for by levies from our electricity bills. The UK Government have acknowledged that that is unsustainable, because roughly a quarter of electricity bills are made up of those levies. That needs to change; there needs to be a fairer system. That is where carbon taxes could be looked at, but—I am repeating myself—it is important that the most vulnerable are protected.
In wider industry, cost-effective decarbonisation solutions need to be available to industry when a carbon tax is introduced, and taxation must be structured so that it is fair and equitable across the UK. Recently, the UK Government opted to fast-track two carbon capture and storage clusters in the north of England but, disgracefully, they have made the Scottish cluster a reserve cluster. That means that, despite the Scottish cluster being the most advanced in project development and deliverability, it is estimated that the two other clusters will proceed at a faster rate.
It would be inherently unfair for the Government to support, either via direct taxation or consumer levies, some industries in some areas of the country while potentially slapping a carbon tax on another area just because they have not been progressed at the same rate. These things have to be looked at in the round. The Scottish cluster takes in the two biggest carbon dioxide emitters in Scotland—Peterhead gas station and the INEOS facilities at Grangemouth. As the biggest polluters, they have to pay to remedy that—that is where we are right—but will they make that investment? They need that assistance, and they must not be disadvantaged when others are getting support.
Revenues from a carbon tax must be reinvested in green initiatives targeted at the most vulnerable and the hardest sectors to decarbonise. They must also be completely transparent. We have had a carbon tax in the airline industry for years: air passenger duty, which is supposed to follow that basic principle of polluter pays, in relation to aircraft emissions. The actual reality is that, over the years, APD has become nothing more than a Government revenue stream. It is not ring-fenced or reinvested; it becomes part of the “money in” column and is added to the mix of Government expenditure.
It is outrageous that over the years, so-called environmental taxes have been levied and never ring-fenced and reinvested in the way they should have been to reduce emissions. Last week, the Chancellor made the crazy announcement of lowering APD on domestic legs of return journeys. We need a serious debate about support for the airline industry and the wider travel industry, but a reduction in air passenger duty should apply only to airlines that use sustainable aviation fuel, which costs more money. At least companies would be incentivised to lower their emissions, with the offset reward of reduced APD. It makes no sense in the current climate to do a blanket APD cut.
In the aviation industry as a whole, for years consecutive Governments of different colours have maintained a policy that aviation fuel is duty free. We pay our petrol duties at the petrol pump for domestic use in our cars, but all these years, aviation fuel has been duty free. That makes no sense. It needs to be looked at in the round. I do not want to kick the airline industry when they are down and make it harder for them, but we need a system that is fair for everyone on carbon taxes, emissions and incentivising behaviour to drive change. The Government need to look at that.
In the oil and gas sector, £350 billion of revenue has come from Scotland over the years. Those were carbon taxes, but that money has never been ring-fenced or reinvested. A sovereign wealth fund has never been created. Most countries across the world have created sovereign wealth funds, which they are using now, in these tough times, either to help their economy, stimulate their economy, or do green initiatives on the path to net zero. But the UK Government have never done that. It is to their shame that we do not have that money, as a legacy, to go forward.
Today, I actually managed to attend a COP26 panel event before I got on the train to come down to Westminster. There was a representative at the event from Louisiana; he was explaining how for years it has used its offshore revenues to pay for climate adaptation measures along its coastline. Obviously, Louisiana is one of the areas most affected by coastal erosion. That shows us what can be done with long-term thinking, but it needs the initiative to look at revenues that are coming in and how to use them wisely. That is what I am calling for. If there is carbon taxation coming in, it must be transparent and it must be available to be reused to fight climate change.
In a similar vein, I represent a former coalfield area. Carbon taxes had been applied to the extraction of coal over the years, but a few years ago, when the open-cast coal industry collapsed in my constituency, it left massive craters that needed reinstatement work at a cost of millions of pounds. Carbon taxes came from my constituency to the Treasury, but they just went into the black hole. When we asked for assistance for restoration work on those abandoned coalmines, the answer that came was, “No. Too bad. That money came in and it has been used. There is no money coming back to your constituency. It doesn’t work that way.” That shows the folly of not ring-fencing a tax for the purpose that it should be ring-fenced for. Again, transparency is utterly critical if we are to go forward.
I would also say on transparency that the Treasury will have to develop these taxes following open consultation with industry, non-governmental organisations and charities. I also suggest that it would be worth the UK Government’s following the lead of the Scottish Government and having a just transition commission that is able to advise the Government on fairness, look at policies across the board and advise the Government accordingly. Equally, the Treasury cannot be left with the power to introduce exemptions from carbon taxes without robust and transparent procedures, or else it is a lobbying exercise and it becomes open season for donors and cronies to lobby the Government and possibly get exemptions. Again, anything that comes forward needs to be transparent.
I have just one further warning about the money not becoming a Treasury income, because that nearly happened post Brexit. The Department for Business, Energy and Industrial Strategy had devised an emissions trading scheme, which was agreed with all the devolved nations, but at the eleventh hour the Treasury wanted to throw away all that work and replace it with the introduction of a carbon tax. That was clearly just because the Treasury saw it as an income stream. That cannot be allowed to happen; the Treasury cannot have carte blanche to do what it wants. It also shows us that carbon taxes have to be developed in conjunction and consultation with the devolved nations.
In Scotland, we have our own net zero by 2045 target. We have, as I said, the Just Transition Commission. We are working with our own policies, so it is only right that carbon taxes be introduced in such a way that they do not adversely impact our direction of travel.
I am getting near my conclusion, Mr Robertson. I have some concerns about a carbon tax, but largely I do favour the concept. I pay tribute to the work done by the Zero Carbon campaign, which has illustrated and highlighted the fact that surveys prove that such a tax is generally popular with the wider public. They understand the need for net zero; they understand the benefits of a carbon tax being introduced, but again, the critical question is whether that is being done fairly. Scotland’s Climate Assembly has had similar findings with the delegates who have participated in the assembly.
Things can be done to resolve the concerns. Again, that is about transparency. It is about targeted reinvestment. Ireland is already doing that: it targets top-up social welfare payments. That is something that this Government could look at, especially with the cost of living and the fuel and energy cost crisis at the moment. They could put more money into supporting electric vehicles as we try to transfer away from the internal combustion engine.
Something that the Scottish Government are doing is interest-free loans. They have extended interest-free loans to the second-hand market to try to extend affordability, but the UK Government are cutting the grants available. If we are going to have carbon taxes, we need to further stimulate the electric vehicle market and ensure that some people are not left behind.
The decarbonisation of our heating systems is absolutely critical. It would be good to step up energy efficiency installations, treat energy efficiency as a capital infrastructure programme and speed up the upgrading of all properties to EPC––energy performance certificate––band C. That would reduce emissions and fuel costs. What could be a fairer way of using the carbon taxes that are levied?
I agree with the two contributions so far about introducing a broader carbon adjustment to minimise leakage or offshoring. We know that carbon taxes can be successful in changing behaviour. We know that they seem to have wider support if they are introduced fairly and transparently, so let us continue with this serious discussion. Let us find a way to introduce them but ensure that it is done in a way that helps us get to net zero and is part of a just transition.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve under your chairship, Mr Robertson.
I thank my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) for introducing this debate on behalf of the Petitions Committee. May I welcome the Minister to her place? This is the first time that we have faced each other and I look forward to debating with her on many issues. I also thank the hon. Member for Broadland (Jerome Mayhew), who spoke passionately about the climate crisis and made recommendations for changes. I found that really insightful.
I want to begin with some general points about the Government’s approach to net zero, the Treasury’s role and what Labour believes we should be doing differently. I will then make some specific points about carbon pricing and the emissions trading scheme.
As my hon. Friend the Member for Newcastle upon Tyne North said, the debate comes while COP26 is taking place in Glasgow, which I think has affected attendance at this debate. I want to state clearly that Labour hopes that COP26 is a success. We do not believe that the Government have done enough in the run-up, but for the sake of our planet and our future, we hope that it is a success.
A couple of weeks ago, the Government published their long-awaited net zero strategy and the accompanying Treasury review. We welcome the fact that the Government have published a detailed strategy for reaching net zero, but we are concerned that there are serious flaws in the strategy and the Government’s overall approach. The strategy does not go far enough to close the gap between the Government’s promises and delivery. First, in too many areas, there are issues: heat pumps, hydrogen, electric vehicle infrastructure, heavy industry and carbon capture and storage. We are not seeing credible plans from the Government that match the scale of ambition that is needed.
Secondly, the strategy underlines the total failure to provide the investment that is needed. The blame for that falls squarely on the Treasury and the Chancellor. The Treasury’s net zero review argued against borrowing to invest in the net zero transition because it would deviate from the polluter pays principles and would not be consistent with inter-generational fairness. That is extraordinary––an extremely worrying statement. It is precisely future generations who will benefit from the green transition, cleaner air and the jobs of the future. There is a failure to act and it would be an unfair legacy to leave this to future generations. I hope that the Minister will reconsider that statement.
It is also staggering that, in last week’s Budget, the Chancellor did not use the word “climate” once: on the single biggest issue facing the planet, the Chancellor has said nothing. When we look in detail at the Budget, we can see why, because it failed to take the decisive action needed on climate change. The Budget had no plans for economic growth, and certainly no plan to invest, at scale, in the transition to a zero carbon economy.
In contrast, the shadow Chancellor has set out Labour’s climate investment pledge: £28 billion of green capital investment each and every year for the rest of the decade. That would go towards critical sectors, such as retrofitting and insulating 90 million homes, bringing down energy bills in the process, and helping industries, such as steel, to transition and keep the good jobs that so many communities rely on.
Unlike the Government, we will not leave households and businesses to face the costs of net zero transition on their own. That has been welcomed by a number of environmental and business groups as a serious offer that meets the scale of the challenge. Business groups and others know that the cost of inaction is far greater than that of action. Just last week, the Office for Budget Responsibility said that the Government’s failure to set out a clear plan for apportioning net zero costs between businesses, households and Government is a source of long-term fiasco risk.
We feel that a responsible Chancellor must be a green Chancellor, and I am afraid that our current Chancellor is simply not either. In fact, one of the major announcements in the Budget was to cut domestic air passenger duty, as has already been mentioned by the hon. Member for Kilmarnock and Loudoun (Alan Brown). We are talking today about the price of carbon, and yet the Chancellor is cutting duty on domestic air travel, which produces significant emissions, while failing to invest properly in rail travel. That is not a choice that Labour would have made, and it is baffling that the Government did.
I will now make a few points about the UK’s emissions trading scheme. In the Government’s response to the petition we are considering, they say,
“The UK has now launched its own Emissions Trading System (ETS) to replace membership of the EU ETS. This will be the world’s first net zero cap and trade market, delivering a robust carbon price signal and promoting cost-effective decarbonisation by allowing businesses to cut carbon where it is cheapest to do so.”
We support that in principle, but I have questions for the Minister on how the ETS is operating and what plans the Government have for its development.
First, the Minister will know that two thirds of emissions are not currently covered by the UK ETS. Will she update us on what plans the Government have to expand it into more sectors? Secondly, the Government have previously stated that they are open to linking the UK ETS to other international schemes. Have they made any progress on that? Are the Government in discussion with the EU about linking it with the EU ETS? Thirdly, there have also been concerns about the stability of the UK ETS, given its relatively small size. Can the Minister tell us how the market is functioning in this regard, and whether the Government consider any changes are required?
Finally, can the Government tell us what further plans they have for carbon pricing policy? The Treasury’s net zero review leaves us with many big questions unanswered, such as how costs will be rebalanced from electricity to gas, the future of vehicle and fuel taxes, and where new sources of revenue will come from.
To conclude, we need the Treasury and the Chancellor to get serious about our net zero transition. We need to end the delays and insufficient investment. We need a plan backed by funding to help us meet our moral obligations to the planet and to future generations. Anything less is simply not good enough.
The Financial Secretary to the Treasury (Lucy Frazer)
It is a pleasure to serve under your chairmanship, Mr Robertson. As many other Members have, I begin by recognising that today is a significant day for international efforts to tackle climate change. Like other hon. Members, I suspect that that is why the Chamber, which I would have expected to be extremely full, is a little sparser than we expected. I am sure that all those who would have wanted to attend are debating this very issue in Glasgow. I thank, recognise and congratulate the more than 100,000 petitioners on securing a debate on this important subject. I do not think that there is any disagreement among the Members present, from both sides of the House, that this is a fundamental issue that we in the UK, as well as others across the world, need to address. As the Prime Minister said at the G20 meeting yesterday,
“If we don’t act now, the Paris agreement will be looked at in the future not as the moment that humanity opened its eyes to the problem but the moment we flinched and turned away.”
I cannot, of course, pre-empt the outcome of the discussions in Glasgow, but I repeat for the record that the Government are absolutely focused on tackling climate change, and we are taking action on a number of different fronts. As the hosts of COP26, we have been determined to promote ambitious action to deliver the urgent transformational changes required by the Paris agreement. We are also seeking to play our own part, as any responsible nation should. As I am sure hon. Members know, between 1990 and 2019 the UK reduced its greenhouse gas emissions by 44%, compared with 5% for the G7 as a whole. Since 2000, the UK has reduced emissions faster than any other country in the G20.
Turning to the specifics of the petition, and some of the points that hon. Members raised, I was grateful to the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) for recognising the importance of the Government’s net zero strategy, which sets out the plan to reduce our emissions, and outlines measures to transition to a green and sustainable future. As my hon. Friend the Member for Broadland (Jerome Mayhew) recognised, we cannot reach net zero by Government action alone. The plan leverages up to £90 billion of private investment by 2030 and confirms £26 billion of public capital investment since the 10-point plan. That investment, and the package of policies in the net zero strategy, will keep the UK on track to meet its carbon budgets and our 2030 nationally determined contribution and to reach net zero by 2050. In doing that, we will lay the foundations for a clean and resilient energy supply by investing in wind, nuclear and carbon capture and storage, as well as accelerating decarbonisation in sectors such as transport and buildings.
The hon. Member for Erith and Thamesmead suggested that the funding was not enough. I reiterate the commitment to a total of £30 billion of domestic investment for the green industrial revolution from 2021-22. She also suggested that the Chancellor was not doing enough, but he is leading on COP26 in liaising with other Finance Ministers on this subject. We will see $100 billion investment by a variety of countries to support developing countries to reduce carbon emissions in their own countries by 2023. We expect to exceed that investment of $100 billion between 2023 and 2025. The Prime Minister is obviously also leading the work at COP26.
A key part of the debate has been about carbon pricing, which most hon. Members talked about. The petition specifically calls for a carbon charge to
“encourage industries and organisations to reduce their carbon emissions”.
The 2020 energy White Paper set out our aspirations to continue to lead the world on carbon pricing in the run-up to COP26 and beyond. The Government believe that carbon pricing is indeed one of the most efficient tools of decarbonisation and has a key role to play in helping the UK to achieve net zero emissions by 2050. That is why we have committed to maintaining an ambitious carbon price to ensure in turn that those who pollute with their emissions pay for them.
The UK already has two carbon pricing policies: the carbon price support and the UK emissions trading scheme. Hon. Members will know that the carbon price support rate is a tax on the fossil fuels used in electricity generation. Since the CPS rates were introduced in 2013, they have contributed to a fall in coal use for electricity generation. The amount of electricity generated from coal fell from 40% in 2012, prior to the CPS, to just 5% in 2018.
At the beginning of the year, the UK launched its own emissions trading scheme, which covers a third of UK emissions and applies a carbon price to the power, industrial and aviation sectors. We have committed to exploring expanding the UK ETS to other sectors. It works on the cap and trade principle by setting a cap on the total amount of certain greenhouse gases that can be emitted by covered sectors. Companies in covered sectors must obtain and surrender sufficient carbon allowances to cover their emissions.
My hon. Friend the Member for Broadland and the hon. Members for Newcastle upon Tyne North (Catherine McKinnell) and for Erith and Thamesmead highlighted that, at the moment, the scheme covers only a third of those emissions and asked what more we would do. I reiterate that we have committed to exploring expanding that scheme to the two thirds of emissions that are not currently covered. The hon. Member for Newcastle upon Tyne North also asked when we will review the carbon price trajectory in the ETS. I reassure her that we remain committed and intend to bring forward a consultation in the coming months. That commitment was reiterated in our net zero strategy.
Several hon. Members, such as the hon. Member for Newcastle upon Tyne North and my hon. Friend the Member for Broadland, recommended that the Government introduce a carbon border adjustment. I reassure them that we are following developments on the EU carbon border adjustment mechanism closely. As COP and G7 president, our instinct is, obviously, that we need to work together with our international partners on how to tackle climate change. We are continually assessing a range of options on that issue.
Catherine McKinnell
I apologise to the Minister for pushing the issue, because I can see that she does not have a clearer response. “In the coming months” is as vague as the timings that we have already been notified of. Can she give either a clearer picture of the timescale that we are talking about or a reason why there is no clear timescale for the consultation?
Lucy Frazer
I do not expect anything other than for the hon. Member to push me on the timing. At the moment, however, all I can say is that we will bring it forward in the coming months. I am happy to keep her updated about the timing as we progress.
Catherine McKinnell
I thank the Minister for giving way again. I will not push her again on that point, as I can see that she does not have a clearer timeframe. Obviously, it is of keen interest to those who are following the debate.
The other issue that I will flag is that she has so far made no reference to ensuring that this is a just and equitable transition so that polluters pay and we do not expect consumers to continue paying more to enable the net zero transition. I wonder whether the Minister just has not got to those comments yet or whether she can say something to assure us that the Government are looking to spread the cost, as well as the responsibility, of meeting our net zero targets.
Lucy Frazer
I thank the hon. Member for her intervention. The two schemes that we already have in place are obviously ones through which the polluter pays; they are about industry recognising that when it pollutes, it must pay for that.
The hon. Lady, as well as the hon. Member for Kilmarnock and Loudoun (Alan Brown), talked about what the Government could do to support individuals. The issue of heat pumps, and the importance of such measures not being too burdensome on those who need to implement them, has been raised on two occasions. A number of Ministers have made this point clearly, but I reiterate that we are not forcing people to take measures such as installing heat pumps: we are saying that if they wish to do so, a grant is available to them. Regarding heat pumps in particular, I would like to make it clear that we expect the price to come down. I suspect that that will happen when we have a requirement for all new homes to be net zero by 2025. When there is the volume of supply of heat pumps that we need, I suspect that their price will come down, as we have seen in relation to electric cars, for example.
Jerome Mayhew
My understanding is that it is not the price of the product that will go down, because France is already installing 400,000 heat pumps, so there is volume in product. Interestingly, it is about the mechanism of installation: when the big electricity suppliers begin to install heat pumps, rather like British Gas does with boilers today, that is when the prices will really come down.
Lucy Frazer
I am grateful to my hon. Friend for that interesting intervention. I hope that the prices of installation will fall as well.
Catherine McKinnell
The Minister is being very generous with her time. I am sure she appreciates that it is important that the polluter pays, but many polluting businesses will pass that cost on to consumers, and we need to be really transparent about where those costs are going to land. I hope the Government are going to take steps to ensure that we do not push people further into fuel poverty and that, if we are installing fuel pumps, we help people to insulate their homes. There is a lot that the Government can do to make sure the poorest do not pay, even if it is by the back door.
Lucy Frazer
I assure the hon. Member that as we bring in policies—I am responsible for tax, and I know this is the case for my area—we are always very conscious of whether the prices are going to be passed down to consumers. As she knows, we already have a number of mechanisms through which we protect those on the lowest incomes: for energy costs, for example, we have the warm home discount and the energy price cap. Of course, we are conscious that we do not want costs to just be passed down.
Lucy Frazer
I will make a little bit of progress, because I am about to address a point that the hon. Member himself mentioned, which was about aviation duty. The point about a domestic increase in air passenger duty has been made over the past few days, but I would like to highlight some other work that is being done in this industry to try to ensure that it is compliant with our net zero targets and ambitions. We have the Jet Zero Council, which is looking at how we revolutionise this industry and make it more carbon neutral.
Alan Brown
I know about the work of the Jet Zero Council, but what measures were in the Budget to help the airline industry decarbonise?
Lucy Frazer
The Budget set out a number of measures to ensure decarbonisation. There was a significant amount of spending in relation to decarbonisation in various transport areas, including the electrification of cars. We have already talked about heat pumps, and in relation to the airline industry, the hon. Member will remember that as well as reducing the tax on domestic airlines, we increased the tax on long-haul flights, recognising that it is not particularly carbon friendly for people to travel further.
I would like to address two important points that were not really raised in the debate but which were in the petition. The petition makes the link between air quality and subsidies to fossil fuel companies. I want to highlight that the UK has been a long-standing supporter of the multilateral efforts to promote fossil fuel subsidy reform since they were first proposed in 2009, including through the G7 and the G20. In December 2020, the UK announced its support for the statement on global fossil fuel subsidy reform. Inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy resources and undermine efforts to deal with the threat of climate change. In March of this year, the Government went further, confirming that the UK
“will no longer provide any new direct financial or promotional support for the fossil fuel energy sector overseas”
other than in tightly defined and limited circumstances, such as technical or regulatory assistance that supports health and safety or to support decommissioning.
The other important matter raised in the petition was air quality. I want to underline that the Government are taking significant steps to improve air quality in the UK. It is not just tax measures, but non-tax measures, that achieve our aims, which is why we have a strong and proportionate regulatory framework that requires industry to reduce emissions, including of carbon dioxide, nitrogen oxide and particulate matter. The industry has responded with investment and innovation to meet those standards.
I would like to conclude by saying that it is a pleasure for the Government to answer on this extremely important topic. The petitioners’ success in securing this debate should not come as a surprise to any of us—it is simply evidence of the widespread recognition of the challenge we face, the importance of the issue and the cross-party support for tackling climate change. As the Prime Minister said yesterday,
“The UK has proved it can be done—we have lowered our greenhouse gas emissions by 44%... And we’re cutting our contribution to climate change more and more every day.”
I reassure hon. Members and the thousands of petitioners that the Government take the issue extremely seriously. We will continue to act on many fronts, both nationally and internationally.
Catherine McKinnell
I thank the Minister for her response and for being very generous in taking interventions.
The debate has highlighted the need to be up front and transparent about the costs and benefits and the trade-offs that will need to be made on the road to net zero. The Prime Minister said that we are at “one minute to midnight” on climate change. We all know we have to change the way we live and the way we do business, but that process is made so much harder by the confusing and opaque nature of much of what is happening. It is very difficult to work out the right thing to do, particularly for consumers, although the landscape is also very confusing for businesses.
We need much more transparency on the sources of carbon emissions. We need to ensure that polluters pay, but we need to ensure that that does not become just words—we need to see action. We also need to end the absurd situation where choosing to be climate-conscious consumers ends up costing us more, which drives the poor decision making and more carbon-intensive behaviour that all of us would rather avoid and that we need to avoid.
The net zero review recognises that the impact will not fall equally. That is where the Government really need to step up and be up front about who the winners and losers will be in the transition. We need now to put in place steps to mitigate that impact, to ensure not only that the transition is fair and equitable, but that it has buy-in from everybody, because we will all benefit from and contribute to it.
We know that the world is watching and waiting for this historic agreement in Glasgow. Leaders at home and abroad know that it is time to turn meaningful words into real action.
Question put and agreed to.
Resolved,
That this House has considered e-petition 574678, relating to charges on carbon emissions.